KLM Royal Dutch Airlines vs CA Case Digest KLM Royal Dutch Airlines vs Court of Appeals (65 SCRA 237)

Facts: Spouses Mendoza approached Mr. Reyes, the branch manager of Philippine Travel Bureau, for consultation about a world tour which they were intending to make with their daughter and niece. Three segments of the trip, the longest, was via KLM. Respondents decided that one of the routes they will take was a Barcelona-Lourdes route with knowledge that only one airline, Aer Lingus, served it. Reyes made the necessary reservations. To this, KLM secured seat reservations for the Mendozas and their companions from the carriers which would ferry them throughout their trip, which the exception of Aer Lingus. When the Mendozas left the Philippines, they were issued KLM tickets for the entire trip. However, their coupon for Aer Lingus was marked on request. When they were in Germany, they went to the KLM office and obtained a confirmation from Aer Lingus. At the airport in Barcelona, the Mendozas and their companions checked in for their flight to Lourdes. However, although their daughter and niece were allowed to take the flight, the spouses Mendozas were off loaded on orders of the Aer Lingus manager, who brusquely shoved them aside and shouted at them. So the spouses Mendozas took a train ride to Lourdes instead. Thus, they filed a complaint for damages against KLM for breach of contract of carriage. The trial court decided in favor of the Mendozas. On appeal, the CA affirmed the decision. Hence, KLM brings this petition to the Supreme Court. KLM cites Art 30 of the Warsaw Convention, which states: the passenger or his representatives can take action only against the carrier who performed the transportation during which the accident or delay occurred. Also, KLM avers that the front cover of each ticket reads: that liability of the carrier for damages shall be limited to occurrences on its own line. Issue: Whether or not KLM is liable for breach of contract of carriage? Held: The applicability of Art. 30 of the Warsaw Convention cannot be sustained. The article presupposes the occurrence of delay or accident. What is manifest here is that the Aer Lingus refused to transport the spouses Mendozas to their planned and contracted destination. As the airline which issued the tickets, KLM was chargeable with the duty and responsibility of specifically informing the spouses of the conditions prescribed in their tickets or to ascertain that the spouses read them before they accepted their passage tickets. The Supreme Court held that KLM cannot be merely assumed as a ticket-issuing agent for other airlines and limit its liability to untoward occurrences on its own line. The court found, that the passage tickets provide that the carriage to be performed therein by several successive carriers is to be regarded as a single operation. Facts: PanAm Airlines refused to accommodate Respondent Tinitigan on Pan Am Flight No. 431 from Sto. Domingo, Republica Dominica to San Juan, Puerto Rico notwithstanding that she possessed a confirmed plane ticket. While plaintiff was standing in line to board the aircraft, a Pan Am employee ordered her in a loud voice to step out of line because her ticket was not confirmed to her embarrassment in the presence of several people who heard and order. Despite her Pleas she was not allowed to board the aircraft. And her seat was also given to a Caucasian. The plane took off without her but with her luggage

on board. She was forced to return to her hotel without any luggage much less an extra dress. While in Sto. Domingo, Tinitigan is expected to be in San Juan that same day to meet a client to sign a contract or lose it. She was expected to make a profit of $1,000 in said contract but because she was unable to board the flight, said profit was lost. The refusal of accommodation, and consequent loss of profit, caused Respondent Tinitigan to suffer mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation. She prayed that she be awarded moral damages of P500,000.00, exemplary damages of P200,000.00, attorneys fees of P100,000.00 and actual damages sustained by her in the amount of US$1,546.15. Defendant denied that plaintiff was a confirmed passenger since the ticket issued to her was on an open space basis, which meant that she could only be accommodated if any of the confirmed passengers failed to show up at the airport before departure. The lower court rendered judgment in favor of plaintiff and awarded the amount of damages as prayed for. Said decision was affirmed, hence the instant petition. Issue: Whether or not the award of damages was proper. Held: Yes, but subject to modifications. Evidence shows petitioner as confirmed passenger. 1.) Defendant issued a Passenger Ticket and Baggage Check with assigned seat and the corresponding pass and baggage claim symbol. 2.) Plaintiff paid the fare and terminal fee. 3.) plaintiffs passport was stamped by immigration. 4.) Plaintiffs name was included in the passenger manifest. There is a contract or carriage perfected between plaintiff and defendant for the latter to take plaintiff to her place of destination. By refusing to accommodate plaintiff in said flight, defendant had willfully and knowingly violated the contract of carriage and failed to bring the plaintiff to her place of destination under its contract with plaintiff. There is showing of bad faith. Self-enrichment or fraternal interest and not personal ill will may have been the motive of defendant, but it is malice nevertheless. Malice is shown by the fact that that plaintiff was ordered out of the line under some pretext in order to accommodate a white man. SC reduced the moral and exemplary damages to the combined total sum of Two Hundred Thousand (P200,000.00) Pesos and the attorneys fees to Twenty Thousand (P20,000.00) Pesos. The award of actual damages in the amount of One Thousand Five Hundred Forty Six American dollars and fifteen cents (US$1,546.15) computed at the exchange rate prevailing at the time of payment was retained and granted. UNITED AIRLINES vs. UY FACTS On October 13, 1989, respondent Willie Uy, a revenue passenger on a United Airlines flight for the San Francisco-Manila route, checked in together with his language one piece which was found to be overweight. An airline personnel rebuked him saying that he should have known the maximum weight allowance (70kgs per bag) and in a loud voice ordered Uy to repack his luggages. Respondent Uy acceded but the luggage was still overweight and so the airline billed him overweight charges which he offered to pay with a miscellaneous charge

order (MCO) or an airline prepaid credit. However, the MCO was not accepted due to conflicting figures listed on it. In addition, upon arrival in Manila, he discovered that one of his bags had been slashed and its contents stolen, claiming the value lost to be around US$ 5,310. Respondent Uy sent three demand letters dated Oct. 16, 1989, Jan. 4, 1990, Oct. 28, 1991. The petitioner airline in response to the first demand, mailed a check representing to the payment of loss based on the maximum liability of $9.70 per pound. Uy was not satisfied and sent the said second and third letter demanding an out-of-court settlement of P1,000,000. United Airlines did not accede to his demands. Consequently on June 9, 1992, respondent Uy filed a complaint for damages alleging that he was a person of good station, sitting in the board of directors of several top 500 corporations and holding senior executive positions for such similar firms, that petitioner airline accorded him ill and shabby treatment to his extreme embarrassment and humiliation. He prayed for P1 million for moral damages, P500k for exemplary, P50k attorneys fees and $5,310 for actual damages. United Airlines moved to dismiss on the ground that Uys cause of action had prescribed invoking Art. 29 of the Warsaw Convention: Art. 29 (1) The right to damages shall be extinguished if an action is not brought within two (2) years, reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or from the date on which the transportation stopped. (2) The method of calculating the period of limitation shall be determined by the law of the court to which the case is submitted. Trial court ordered the dismissal of the action while the CA reversed stating that the Warsaw Convention did not preclude the operation of the Civil Code and other pertinent laws. ISSUE W/N the 2 year prescriptive period of the Warsaw Convention bar respondent Uys action for damages? No. RULING Within Philippine jurisdiction the SC has held that the Warsaw Convention can be applied, or ignored, depending on the peculiar facts presented by each case. Thus, the Convention's provisions do not regulate or exclude liability for other breaches of contract by the carrier or misconduct of its officers and employees, or for some particular or exceptional type of damage. Insofar as the first cause of action (action for damages arising from misconduct) is concerned, respondent's failure to file his complaint within the 2 year limitation of the Warsaw Convention does not bar his action since petitioner airline may still be held liable for breach of other provisions of the Civil Code which prescribe a different period or procedure for instituting the action, specifically, Art. 1146 thereof which prescribes 4 years for filing an action based on torts. As for respondent's second cause of action (action for damages arising from damage to property), indeed the travaux preparatories of the Warsaw Convention reveal that the delegates thereto intended the 2 year limitation incorporated in Art. 29 as an absolute bar to suit and not to be made subject to the various tolling provisions of the laws of the forum. This therefore forecloses the application of our own rules on interruption of prescriptive periods. Article 29, par. (2), was intended only to let local laws determine whether an action had been commenced within the 2 year period, and within our jurisdiction an action shall be deemed commenced upon the

filing of a complaint. Since it is indisputable that respondent filed the present action beyond the 2 year time frame his second cause of action must be barred. However in spite of this, the SC declared that although respondent filed his complaint more than 2 years later, beyond the period of limitation prescribed by the Warsaw Convention for filing a claim for damages, it is obvious that respondent was forestalled from immediately filing an action because petitioner airline gave him the runaround, answering his letters but not giving in to his demands. Hence, despite the express mandate of Art. 29 of the Warsaw Convention that an action for damages should be filed within 2 years from the arrival at the place of destination, such rule shall not be applied in the instant case because of the delaying tactics employed by petitioner airline itself. Therefore, Uy's second cause of action cannot be considered as time-barred under Art. 29 of the Warsaw Convention. Savellano v Northwest Airlines Facts: Savellano, ex-Mayor and former Chairman of COMELEC and wife were expected to arrive at NAIA after 12 hours of travel coming from Seattle. The plane made an emergency landing because a fire started in one of the engines. They passengers were brought to a hotel. At around midnight, they were awakened by a phone call from Northwest's personnel saying that they would be take a Seattle-Tokyo-Manila route on the flight back to Manila the next day. Upon arrival at the airport they were again advised that they would take an alternative and longer route (Seattle - Los Angeles - SeoulManila) back to Manila. Meanwhile, the other passengers took the first route. Upon arrival of Savellano at Manila, they were teased for taking the longer and tiresome route. They also discovered that their luggage had been ransacked and the contents stolen. Savellano demanded damages on the ground that they suffered inconvenience, embarrassment and humiliation for taking the longer route. Issue: 1.Whether or not the bump-off was a breach of the air carriage contract 2. Whether or not Savellano is entitled to actual, moral and exemplary damages. Held: 1. Yes. In the condition of the airline ticket, there is nothing authorizing Northwest to decide unilaterally what other stopping places Savellano should take and when they should fly. Substituting aircraft without notice is entirely different from changing stopping places or connecting cities without notice. Also, Northwest failed to show a case of necessity for changing the stopping place. 2. On moral damages: Northwest is not guilty of bad faith. It appears that the passengers of the distressed flight were randomly divided into 2 groups. One group taking the first route and the other taking the longer route of flight. The selection of who was to take the flight was handled via computer reservation system. Savellano failed to present convincing evidence to back the allegation that Northwest was guilty of bad faith. On exemplary damages, it is not proper. The unexpected and sudden requirement of having to arrange connecting flights in just a few hours, in addition to the Northwest employees' normal workload was difficult to satisfy perfectly. Northwest is not liable for its imperfection of neglecting to consult with passengers beforehand.

Nominal damages are awarded in this case. The court considered that Savellano suffered the inconvenience of having to wake up early to catch the flight and that they were business class passengers who paid more for better service. It also considered Savellano's social and official status. The court awarded P150,000 as nominal damages in order to vindicate and recognize their right to be notified and consulted. Notes: *The rulings of Lopez, Zulueta and Ortigas are not applicable in this case there is no showing that the breach was done with the same entrepreneurial motive as in Lopez or with ill-will as in Zulueta and Ortigas. *Good faith is presumed while bad faith is a matter of fact that needs to be proved by the party alleging it. Philippine Air Lines vs. Miano 21062010 PHILIPPINE AIR 241 SCRA 235 (Art. 1170) Facts: Private respondent Miano took petitioners flight PR 722, Mabuhay Class, bound for Frankfurt, Germany. He had an immediate onward connecting flight to Vienna, Austria. At the NAIA, he checked-in a suitcase. He claimed that his suitcase contained money, documents, one Nikkon camera with zoom lens, suits, sweaters, shirts, pants, shoes, and other accessories. Upon arrival at Vienna, his checked-in baggage was missing. He reported the matter to the Lufthansa authorities. After three (3) hours of waiting in vain, he proceeded to Piestany, Czechoslovakia. Eleven days after, his suitcase was delivered to him in his hotel in Piestany, Czechoslovakia. Because of the delay in the delivery of his suitcase, he was forced to borrow money to buy some clothes, to pay $200.00 for the transportation of his baggage from Vienna to Piestany, and lost his Nikkon camera. Private respondent is demanding: (1) P10,000.00 cost of allegedly lost Nikkon camera; (2) $200.00 for alleged cost of transporting luggage from Vienna to Piestany; and (3) P100,000.00 as damages. Issue: WON the delay was attended by bad faith? NO WON the award of damages by the lower court was proper? NO WON the award of attorneys fees by the lower court was proper? NO Held: The established facts evince that petitioners late delivery of the baggage for eleven (11) days was not motivated by ill will or bad faith. In fact, it immediately coordinated with its Central Baggage Services to trace private respondents suitcase and succeeded in finding it. Upon inquiry from their Frankfurt Station, it was however discovered that the interline tag of private respondents baggage was accidentally taken off. According to Mr.Ebio, it was customary for destination stations to hold a tagless baggage until properly identified. The tracer telex, which contained information on the baggage, is matched with the tag-less luggage for identification. Without the tracer telex, the color and the type of baggage are used as basis for the matching. Thus, the delay. LINES vs. MIANO

Bad faith under the law cannot be presumed; it must be established by clear and convincing evidence. Again, the unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could reasonably have foreseen. The prerequisite for the award of exemplary damages in cases of contract or quasi-contract is that the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. The undisputed facts do not so warrant the characterization of the action of petitioner. The fact that private respondent was compelled to litigate and incur expenses to protect and enforce his claim did not justify the award of attorneys fees. The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. Petitioner is willing to pay the just claim of $200.00 as a result of the delay in the transportation of the luggage in accord with the Warsaw Convention. Needless to say, the award of attorneys fees must be deleted where the award of moral and exemplary damages are eliminated. Yangco v. Laserna Facts: At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner here, Teodoro R. Yangco, left the port of Romblon on its return trip to Manila. Typhoon signal No. 2 was then up, of which fact the captain was duly advised and his attention thereto called by the passengers themselves before the vessel set sail. The boat was overloaded as indicated by the load line which was 6 to 7 inches below the surface of the water. The passengers, numbering about 180, were overcrowded, the vessel's capacity being limited to only 123 passengers. As the sea became increasingly violent, the captain ordered the vessel to turn left, evidently to return to port, but in the maneuver, the vessel was caught sidewise by a big wave which caused it to capsize and sink. Many of the passengers died in the mishap. Separate civil actions were filed against petitioner to recover damages for the death of the passengers. Issue: May the shipowner or agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held liable in damages for the consequent death of its passengers? Held: No. This question is controlled by the provisions of article 587 of the Code of Commerce. Said article reads: The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the voyage. The provisions accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is entitled as of right to abandon "the vessel with all her equipment and the freight it may have earned during the voyage." Lawful acts and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason that such obligations arise from the contract of agency while as to any liability incurred by the captain through his unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not extend

further. For this reason the Codeof Commerce makes the agent liable to the extent of the value of the vessel, as the codes of the principal maritime nations provide with the vessel, and not individually. If the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. Assuming that petitioner is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime lawoperates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured. Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with law of not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle ceremony. Yangco is therefore absolved from the complaints.

for injuries to third parties, acts of the captain and collisions. The only time the Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent. o In this case, there has been no actual finding of negligence on the part of Aboitiz. The rights of parties to claim against an agent or owner of a vessel may be compared to those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims against it. o Each individual creditor may prove the actual amount of their respective claims but this does not mean that they shall be allowed to recover fully. o The claimants or creditors are limited in their recovery to the remaining value of accessible assets. o No claimant can be given precedence over the others by the simple expedience of having filed or completed its action than the rest. Thus, execution of judgment must be stayed pending completion of all cases occasioned by the subject sinking.

Aboitiz v New India G..R. No. 156978 May 2, 2006 J. Quisimbing Aboitiz Shipping Corporation V. General Accident Fire and Life Assurance Corporation, Ltd. | Melo, J. (1993) RATIO DECIDENDI The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as guaranty for their settlement. FACTS Aboitiz Corporation operated M/V P. Aboitiz, a common carrier which sank on a voyage from Hong Kong to the Philippines on 31 October 1980. General Accident Fire and Life Assurance Corporation, Ltd. Is a foreign insurance company pursuing its remedies as subrogee of several cargo consignees whose cargo sank with the said vessel. The sinking gave rise to several suits against Aboitiz. The sinking was initially investigated by the Board of Marine Inquiry which found that the sinking was due to force majeure and that the vessel was sea worthy. Notwithstanding such finding, the trial court found against the carrier on the basis that the loss was not due to force majeure. o The attempted execution of the judgment award in said case gave rise to this case. Aboitiz contends that the Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of other creditors shares. Facts: Textile cargo owned by General Textile was shipped to Manila using M/V P. Aboitiz. Before departing, the vessel was advised that it was safe to travel to its destination, but while at sea, the vessel received a report of a typhoon moving within its path. It was at the edge of a typhoon when its hull leaker. The vessel sank, but the captain and his crew were saved. The captain filed his Marine Protest, stating that the weather was moderate breeze, small waves, becoming longer, fairly frequent white horse General Textile lodged a claim with respondent for the amount of its loss. Respondent paid General Textile and was subrogated to the rights of the latter. After investigation, the cause was found to be the vessels unsearworthiness. General filed a complaint with Aboitiz and the trial court consequently ruled in favor of the former. Petitioner elevated the case to the Court of Appeals, which in turn, affirmed the trial courts decision. It moved for reconsideration but the same was denied. Hence, this petition for review Issue: WON the limited liability doctrine applies in this case Held: No Ratio: Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be applied. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence over the goods they transport according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible, unless they can prove that the loss, destruction or deterioration was brought about by the causes specified in Article 1734 of the Civil Code. In all other cases, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence. Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be negligent since it is tasked with the maintenance of its vessel. Though this duty can be delegated, still, the shipowner must exercise close supervision over its men. In the present case, petitioner has the burden of showing that it exercised extraordinarydiligence in the transport of the goods it

ISSUE/HELD WoN the Limited Liability Rule arising out of the real and hypothecary nature of maritime law should apply in this case YES RATIO The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as guaranty for their settlement. o The liability of the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its equipment, freight, and insurance, if any. The Limited Liability Rule in the Philippines cover only liability

had on board in order to invoke the limited liability doctrine. Differently put, to limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence. Considering the evidence presented and the circumstances obtaining in this case, we find that petitioner failed to discharge this burden. Both the trial and the appellate courts, in this case, found that the sinking was not due to the typhoon but to its unseaworthiness. Evidence on record showed that the weather was moderate when the vessel sank. These factual findings of the Court of Appeals, affirming those of the trial court are not to be disturbed on appeal, but must be accorded great weight. These findings are conclusive not only on the parties but on this Court as well. Philippine National Bank vs. Court of Appeals [337 SCRA 381 (Aug. 8, 2000)] Preference of Credit: Maritime Lien Facts: To finance the acquisition of 7 shipping vessels, the Philippine International Shipping Corporation (PISC) applied for and was granted by National Investment Development Corporation (NIDC) guaranty accomodations. As security for these guaranty accomodations, PISC executed chattel mortgages on the vessels to be acquired by it. Meanwhile, PISC entered into a contract with Hong Kong United Dockyards, Ltd. for the repair and conversion of one of the vessels, M/V Asean Liberty. The Central Bank of the Phils. authorized PISC to open with China Banking Corporation (CBC) a standby letter of credit for US$545,000 in favor of Citibank, N.A. to cover the repair and partial conversion of the vessel M/V Asean Liberty. PISC executed an Application and Agreement for Commercial Letter of Credit for US$545,000 with CBC in favor of Citibank. CBC then issued its Irrevocable Standby Letter of Credit for US$545,000 in favor of Citibank for the account of PISC. PISC executed a promissory note for US$545,000 in favor of Citibank pursuant to the Loan Agreement between PISC and Citibank. Upon failure of PISC to fulfill its obligations, Citibank sent CBC a letter drawing on the Letter of Credit. CBC then instructed its correspondent Irving Trust Co. to pay to Citibank the amount of US$242,225. Subsequently, for failure of PISC to settle its obligations under the guaranty accommodations, the Philippine National Bank (PNB) conducted an auction sale of the mortgaged vessels. NIDC emerged as the highest bidder in these auctions. PISC, claiming that the foreclosure sale of its mortgaged vessels was illegal and irregular, instituted a civil case for the annulment of the foreclosure and auction sale. CBC filed a complaint in intervention for recovery upon a maritime lien against the proceeds of the sale of the foreclosed vessels. Issue: Whether or not CBCs claim as evidenced by its Irrevocable Letter of Credit is in the nature of a maritime lien under the provisions of P.D. No. 1521; and if so, whether or not said maritime lien is preferred over the mortgage lien of PNB/NIDC on the foreclosed vessel M/V Asean Liberty Held: Under the provisions of P.D. No. 1521, any person furnishing repairs, supplies, or other necessities to a vessel on credit will have a maritime lien. Such maritime lien, if it arose prior to the recording of a preferred mortgage lien, shall have priority over the said mortgage lien. In this case, it was Hongkong United Dockyards, Ltd. which originally possessed a maritime lien over the vessel M/V Asean Liberty by virtue of its repair of the said vessel on credit. CBC, however, stands as guarantor of the loan extended by Citibank to PISC. It was Citibank which advanced the money to PISC. It was only upon the failure of PISC to fulfill its obligations under its promissory note to Citibank that CBC was called upon by Citibank to exercise its duties under the Standby Letter of Credit. The applicable law, which is the Shipping Mortgage Decree of 1978, was patterned closely after the U.S. Ship Mortgage Act of 1920. Being of foreign origin, the provisions of the Ship Mortgage Decree of 1978 may thus be construed with the aid of foreign jurisprudence. Under American jurisprudence, furnishing money to a master in good

faith to obtain repairs or supplies or to remove liens, in order to forward the voyage of the vessel, raises a lien just as though the things for which money was obtained to pay for had been furnished by the lender. This is in accord with Art5. 1302 of the Civil Code which provides that there is legal subrogation when a third person, not interested in the fulfillment of the obligation, pays with the express or tacit approval of the debtor. In this case, the amount for the repair of vessel M/V Asean Liberty was advanced by Citibank and was used for the purpose of paying off the original maritime lienor, Hongkong United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC and Hongkong United Dockyards, Ltd., Citibank was subrogated to the rights of Hongkong United Dockyards, Ltd. as maritime lienor over the vessel. CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC, the latters debtor. Art. 2067 of the civil Code provides that the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. When CBC honored its contract of guaranty with Citibank on March 30, 1983, it also acquired by subrogation the maritime lien over the vessel which attached to it on March 12, 1979 in favor of Hongkong United Drydocks, Ltd. The maritime lien of CBC thus arose prior to the recording of PNB/NIDCs mortgage on September 25, 1979. As such, the said maritime lien has priority over the said mortgage lien. NEGROS NAVIGATION CO. vs. CA Facts: Private respondent Ramon Miranda purchased from the Negros Navigation Co., Inc. four special cabin tickets for his wife, daughter, son and niece who were going to Bacolod City to attend a family reunion boarding the Don Juan. Don Juan collided off the Tablas Strait in Mindoro, with the M/T Tacloban City, an oil tanker owned by the Philippine National Oil Company (PNOC) and the PNOC Shipping and Transport Corporation (PNOC/STC). As a result, the M/V Don Juan sank. Several of her passengers perished in the sea tragedy. The bodies of some of the victims were found and brought to shore, but the four members of private respondents' families were never found. Issue: Whether or not the extraordinary diligence required? petitioners exercised the

Held: No. As with the Mecenas case, this Court found petitioner guilty of negligence in (1) allowing or tolerating the ship captain and crew members in playing mahjong during the voyage, (2) in failing to maintain the vessel seaworthy and (3) in allowing the ship to carry more passengers than it was allowed to carry. Also, the duty to exercise due diligence includes the duty to take passengers or cargoes that are within the carrying capacity of the vessel.

KMU vs Garcia Case Digest Kilusang Mayo Uno Labor Center vs Garcia 239 SCRA 538 (1994) Facts: The Kilusang Mayo Uno Labor Center (KMU) assails the constitutionality and validity of a memorandum which, among others, authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation fares without application therefore with the LTFRB, and without hearing and approval thereof by said agency. Issue: Whether or not the absence of notice and hearing and the delegation of authority in the increase or decrease of transportation fares to provincial bus and jeepney operators is illegal?

Held: Under Section 16 (c) of the Public Service Act, as amended, the legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order 202. The authority given by the LTFRB to the bus operators to set fares over and above the authorized existing fare is illegal and invalid, as it is tantamount to undue delegation of legislative authority. Under the maxim potestas delegate non delegari potest what has been delegated cannot be delegated. The policy allowing provincial bus operators to change and increase their fares would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares, every hour, every day, every month or every year, whenever it pleases them or whenever they deem it necessary to do so. Furthermore, under the Section 16 (a) of Public Service Act, there must be proper notice and hearing in the fixing of rates, to arrive at a just and reasonable rate acceptable to both the public utility and the public. MCWD v. Adala The Decision of the Regional Trial Court (RTC) of Cebu dated February 10, 2005, which affirmed in toto the Decision of the National Water Resources Board (NWRB) dated September 22, 2003 in favor of Margarita A. Adala, respondent, is being challenged in the present petition for review on certiorari. Respondent filed on October 24, 2002 an application with the NWRB for the issuance of a Certificate of Public Convenience (CPC) to operate and maintain waterworks system in sitios San Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City. At the initial hearing of December 16, 2002 during which respondent submitted proof of compliance with jurisdictional requirements of notice and publication, herein petitioner Metropolitan Cebu Water District, a government-owned and controlled corporation created pursuant to P.D. 198[1] which took effect upon its issuance by then President Marcos on May 25, 1973, as amended, appeared through its lawyers to oppose the application. While petitioner filed a formal opposition by mail, a copy thereof had not, on December 16, 2002, yet been received by the NWRB, the day of the hearing. Counsel for respondent, who received a copy of petitioners Opposition dated December 12, 2002 earlier that morning, volunteered to give a copy thereof to the hearing officer.[2] In its Opposition, petitioner prayed for the denial of respondents application on the following grounds: (1) petitioners Board of Directors had not consented to the issuance of the franchise applied for, such consent being a mandatory condition pursuant to P.D. 198, (2) the proposed waterworks would interfere with petitioners water supply which it has the right to protect, and (3) the water needs of the residents in the subject area was already being well served by petitioner. After hearing and an ocular inspection of the area, the NWRB, by Decision dated September 22, 2003, dismissed petitioners Opposition for lack of merit and/or failure to state the cause of action[3] and ruled in favor of respondent as follows: PREMISES ALL CONSIDERED, and finding that Applicant is legally and financially qualified to operate and maintain the subject

waterworks system, and that said operation shall redound to the benefit of the of the [sic] consumers of Sitios San Vicente, Fatima and Sambag at Bulacao Pardo, Cebu City, thereby promoting public service in a proper and suitable manner, the instant application for a Certificate of Public Convenience (CPC) is, hereby, GRANTED for a period of five (5) years with authority to charge the proposed rates herein set effective upon approval as follows: Consumption Blocks 0-10 cu. m. 11-20 cu. m. 21-30 cu. m. 31-40 cu. m. 41-50 cu. m. 51-60 cu. m. 61-70 cu. m. 71-100 cu. m. Over 100 cu. m. The Rules and Regulations, hereto, attached for the operation of the waterworks system should be strictly complied with. Since the average production is below average day demand, it is recommended to construct another well or increase the well horsepower from 1.5 - 3.00 Hp to satisfy the water requirement of the consumers. Moreover, the rates herein approved should be posted by GRANTEE at conspicuous places within the area serviced by it, within seven (7) calendar days from notice of this Decision. SO ORDERED.[4] Its motion for reconsideration having been denied by the NWRB by Resolution of May 17, 2004, petitioner appealed the case to the RTC of Cebu City. As mentioned early on, the RTC denied the appeal and upheld the Decision of the NWRB by Decision dated February 10, 2005. And the RTC denied too petitioners motion for reconsideration by Order of May 13, 2005. Hence, the present petition for review raising the following questions of law: i. WHETHER OR NOT THE CONSENT OF THE BOARD OF DIRECTORS OF THE WATER DISTRICT IS A CONDITION SINE QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE BY THE NATIONAL WATER RESOURCES BOARD UPON OPERATORS OF WATERWORKS WITHIN THE SERVICE AREA OF THE WATER DISTRICT? WHETHER THE TERM FRANCHISE AS USED IN SECTION 47 OF PRESIDENTIAL DECREE 198, AS AMENDED MEANS A FRANCHISE GRANTED BY CONGRESS THROUGH LEGISLATION ONLY OR DOES IT ALSO INCLUDE IN ITS MEANING A CERTIFICATE OF PUBLIC CONVENIENCE ISSUED BY THE NATIONAL WATER RESOURCES

Propose

P125. 13. 14. 35. 37. 38. 40. 45. 50.

ii.

BOARD FOR THE MAINTENANCE OF WATERWORKS SYSTEM OR WATER SUPPLY SERVICE?[5] Before discussing these substantive issues, a resolution of the procedural grounds raised by respondent for the outright denial of the petition is in order. By respondents claim, petitioners General Manager, Engineer Armando H. Paredes, who filed the present petition and signed the accompanying verification and certification of non-forum shopping, was not specifically authorized for that purpose. Respondent cites Premium Marble Resources v. Court of Appeals[6] where this Court held that, in the absence of a board resolution authorizing a person to act for and in behalf of a corporation, the action filed in its behalf must fail since the power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of Appeals[7] where this Court held that [f]or such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. (Emphasis supplied by respondent) That there is a board resolution authorizing Engineer Paredes to file cases in behalf of petitioner is not disputed. Attached to the petition is petitioners Board of Directors Resolution No. 015-2004, the relevant portion of which states: RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the General Manager, ENGR. ARMANDO H. PAREDES, to file in behalf of the Metropolitan Cebu Water District expropriation and other cases and to affirm and confirm above-stated authority with respect to previous cases filed by MCWD. x x x x[8] (Emphasis and underscoring supplied) To respondent, however, the board resolution is invalid and ineffective for being a roving authority and not a specific resolution pursuant to the ruling inABS-CBN. That the subject board resolution does not authorize Engineer Paredes to file the instant petition in particular but expropriation and other cases does not,by itself, render the authorization invalid or ineffective. In BA Savings Bank v. Sia,[9] the therein board resolution, couched in words similar to the questioned resolution, authorized persons to represent the corporation, not for a specific case, but for a general class of cases. Significantly, the Court upheld its validity: In the present case, the corporation's board of directors issued a Resolution specifically authorizing its lawyers "to act as their agents in any action or proceedingbefore the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments necessary for such action and proceeding." The Resolution was sufficient to vest such persons with the

authority to bind the corporation and was specific enough as to the acts they were empowered to do. (Emphasis and underscoring supplied, italics in the original) Nonetheless, while the questioned resolution sufficiently identifies the kind of cases which Engineer Paredes may file in petitioners behalf, the same does not authorize him for the specific act of signing verifications and certifications against forum shopping. For it merely authorizes Engineer Paredes to file cases in behalf of the corporation. There is no mention of signing verifications and certifications against forum shopping, or, for that matter, any document of whatever nature. A board resolution purporting to authorize a person to sign documents in behalf of the corporation must explicitly vest such authority. BPI Leasing Corporation v. Court of Appeals[10] so instructs: Corporations have no powers except those expressly conferred upon them by the Corporation Code and those that are implied by or are incidental to its existence. These powers are exercised through their board of directors and/or duly authorized officers and agents. Hence, physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by specific act of the board of directors. The records are bereft of the authority of BLC's [BPI Leasing Corporation] counsel to institute the present petition and to sign the certification of non-forum shopping. While said counsel may be the counsel of record for BLC, the representation does not vest upon him the authority to execute the certification on behalf of his client. There must be a resolution issued by the board of directors that specifically authorizes him to institute the petition and execute the certification, for it is only then that his actions can be legally binding upon BLC. (Emphasis, italics and underscoring supplied) It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely defines filing as the act of presenting the pleading or other paper to the clerk of court. Since the signing of verifications and certifications against forum shopping is not integral to the act of filing, this may not be deemed as necessarily included in an authorization merely to file cases. Engineer Paredes not having been specifically authorized to sign the verification and certification against forum shopping in petitioners behalf, the instant petition may be dismi ssed outright. Technicality aside, the petition just the same merits dismissal. In support of its contention that the consent of its Board of Directors is a condition sine qua non for the grant of the CPC applied for by respondent, petitioner cites Section 47 of P.D. 198[11] which states: Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said

district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration. (Emphasis and underscoring supplied) There being no such consent on the part of its board of directors, petitioner concludes that respondents application for CPC should be denied. Both parties arguments center, in the main, on the scope of the word franchise as used in the above-quoted provision. Petitioner contends that franchise should be broadly interpreted, such that the prohibition against its grant to other entities without the consent of the districts board of directors extends to the issuance of CPCs. A contrary reading, petitioner adds, would result in absurd consequences, for it would mean that Congress power to grant franchises for the operation of waterworks systems cannot be exercised without the consent of water districts. Respondent, on the other hand, proffers that the same prohibition only applies to franchises in the strict sense those granted by Congress by means of statute and does not extend to CPCs granted by agencies such as the NWRB. Respondent quotes the NWRB Resolution dated May 17, 2004 which distinguished a franchise from a CPC, thus: A CPC is formal written authority issued by quasi-judicial bodies for the operation and maintenance of a public utility for which a franchise is not required by law and a CPC issued by this Board is an authority to operate and maintain a waterworks system or water supply service. On the other hand, a franchise is privilege or authority to operate appropriate private property for public use vested by Congress through legislation. Clearly, therefore, a CPC is different from a franchise and Section 47 of Presidential Decree 198 refers only to franchise. Accordingly, the possession of franchise by a water district does not bar the issuance of a CPC for an area covered by the water district.(Emphasis and underscoring supplied by respondent) Petitioners position that an overly strict construction of the term franchise as used in Section 47 of P.D. 198 would lead to an absurd result impresses. If franchises, in this context, were strictly understood to mean an authorization issuing directly from the legislature, it would follow that, while Congress cannot issue franchises for operating waterworks systems without the water districts consent, the NWRB may keep on issuing CPCs authorizing the very same act even without such consent. In effect, not only would the NWRB be subject to less constraints than Congress in issuing franchises. The exclusive character of the franchise provided for by Section 47 would be illusory. Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,[12] has construed the term franchise broadly so as to include, not only authorizations issuing directly from Congress in the form of statute, but also those granted by administrative agencies to which the power to grant franchises has been delegated by Congress, to wit: Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of

certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.[13] That the legislative authority in this instance, then President Marcos[14] intended to delegate its power to issue franchises in the case of water districts is clear from the fact that, pursuant to the procedure outlined in P.D. 198, it no longer plays a direct role in authorizing the formation and maintenance of water districts, it having vested the same to local legislative bodies and the Local Water Utilities Administration (LWUA). Sections 6 and 7 of P.D. 198, as amended, state: SECTION 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any political subdivision. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. To form a district, the legislative body of any city, municipality or province shall enact a resolution containing the following: (a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words "Water District". (b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof: Provided, That such municipalities, cities or provinces, or portions thereof, cover a contiguous area. (c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city, municipality or province to such district upon the filing of resolution forming the district.

(d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above. (e) The names of the initial directors of the district with the date of expiration of the term of office for each which shall be on the 31st of December of first, second, or third even-numbered year after assuming office, as set forth in Section 11 hereof. (f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 45 of this Title. (g) A statement acknowledging the powers, rights and obligations as set forth in Section 25 of this Title. Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act. If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province; or the city, municipality or province in which 75% of the total active service connections are situated shall pass an initial resolution to be concurred in by the other cities, municipalities or provinces. SECTION 7. Filing of Resolution. A certified copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of Administration. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed. The district shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing the stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local government or governments concerned shall lose ownership, supervision and control or any right whatsoever over the district except as provided herein. (Emphasis and underscoring supplied) It bears noting that once a district is duly formed and existing after following the above procedure, it acquires the exclusive franchise referred to in Section 47. Thus, P.D. 198 itself, in harmony with Philippine Airlines, Inc. v. Civil Aeronautics Board,[15] gives the name franchise to an authorization that does not proceed directly from the legislature. It would thus be incongruous to adopt in this instance the strict interpretation proffered by respondent and exclude from the scope of the term franchise the CPCs issued by the NWRB.[16] Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of CPCs for the reasons discussed above, the same provision must be deemed void ab initio for

being irreconcilable with Article XIV Section 5 of the 1973 Constitution which was ratified on January 17, 1973 the constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973 Constitution reads: SECTION 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Batasang Pambansa when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis and underscoring supplied) This provision has been substantially reproduced in Article XII Section 11 of the 1987 Constitution, including the prohibition against exclusive franchises.[17] In view of the purposes for which they are established,[18] water districts fall under the term public utility as defined in the case of National Power Corporation v. Court of Appeals:[19] A public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service. x x x (Emphasis and underscoring supplied) It bears noting, moreover, that as early as 1933, the Court held that a particular water district the Metropolitan Water District is a public utility.[20] The ruling in National Waterworks and Sewerage Authority v. NWSA Consolidated Unions[21] is also instructive: We agree with petitioner that the NAWASA is a public utility because its primary function is to construct, maintain and operate water reservoirs and waterworks for the purpose of supplying water to the inhabitants, as well as consolidate and centralize all water supplies and drainage systems in the Philippines. x x x (Emphasis supplied) Since Section 47 of P.D. 198, which vests an exclusive franchise upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution,[22] it is unconstitutional and may not, therefore, be relied upon by petitioner in support of its opposition against respondents application for CPC and the subsequent grant thereof by the NWRB. WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is thus, in light of the foregoing discussions, DISMISSED.